Discussion

In evaluating whether the Commission should adopt or reject a settlement, we rely on the settlement and stipulation rules found in Rules 51 to 51.10 of the Commission's Rules of Practice and Procedure. In particular, Rule 51.1(e) provides that: "The Commission will not approve stipulations or settlements, whether contested or uncontested, unless the stipulation or settlement is reasonable in light of the whole record, consistent with law, and in the public interest." A "settlement" is defined in Rule 51(c) to mean "an agreement between some or all of the parties to a Commission proceeding on a mutually acceptable outcome to the proceedings."

A "contested" settlement is a "settlement that is opposed in whole or part, as provided in this article, by any of the parties to the proceeding in which such ... settlement is proposed for adoption by the Commission." (Rule 51(e).) If a party decides to contest a settlement, it must do the following:

"A party contesting a proposed ... settlement must specify in its comments the portions of the stipulation or settlement that it opposes, the legal basis of its opposition, and the factual issues that it contests. Parties should indicate the extent of their planned participation at any hearing. If the contesting party asserts that hearing is required by law, appropriate citation shall be provided." (Rule 51.5)

If a settlement is contested "in whole or in part on any material issue of fact by any party, the Commission will schedule a hearing on the contested issue(s) as soon after the close of the comment period as reasonably possible." However, the "Commission may decline to set hearing in any case where the contested issue of fact is not material or where the contested issue is one of law." (Rule 51.6.)

Although the settling parties point out in their reply comments that "not a single party has opposed the Gas Accord II Settlement," or the one-year extension of the Gas Accord, the settling parties acknowledge that some of the commenting parties "have requested that the Commission impose one or more changes to the Settlement, or condition its approval in such a way as to modify the Settlement." (Joint Reply Comments, pp. 1-2.) Before deciding whether the proposed settlement agreement should be adopted or not, we must address whether these changes or conditions amount to a contested settlement, and if so, should there be a hearing on the contested issue.

No party has asserted that hearings are necessary, nor has any party indicated the extent of its participation if a hearing is held. Thus, one could infer that the proposed changes to the settlement agreement are issues that could be resolved without a hearing. Rule 51.6(b) specifically provides that the Commission "may decline to set hearing in any case where the contested issue of fact is not material or where the contested issue is one of law." Before making that determination, we examine each of the clarifications, changes or conditions that the commenting parties have requested.

SoCalGas and SDG&E assert that the Commission should reject the proposed settlement agreement, if the Comprehensive Settlement adopted by the Commission in D.01-12-018 is not quickly implemented. The settling parties state in their reply comments that approval of the proposed settlement agreement, which is a one-year extension of the existing market structure for PG&E's system, should not be linked to the restructuring of the SoCalGas system adopted in D.01-12-018.

We agree with the settling parties. Although the implementation of D.01-12-018 would establish a gas structure for SoCalGas similar to PG&E's structure, this linkage should not be the basis for rejecting the proposed settlement agreement which extends the Gas Accord for PG&E by another year.

DGS seeks clarification as to whether there will be a settlement on the scoping memo issues or if there will be a full record on the effectiveness of the Gas Accord structure, and when PG&E can be expected to file an amended application. According to the settling parties, PG&E has reserved its right to modify its application in this proceeding or to file a superceding application, and other parties to the settlement have also reserved their rights. The settling parties recommend that the Commission honor the rights of the parties as set forth in the settlement, and not curtail PG&E's rights as sought by DGS.

At this time, we will defer to the settling parties on how they have agreed to proceed with the issues identified in the Scoping Memo, and whether or not PG&E will file an amended application or a new application. Under the settlement, the Gas Accord structure and rates will be extended for an additional year. During that time period, the present procedural schedule anticipates a resolution of the issues identified in the Scoping Memo, and that the Bankruptcy Court will adopt some form of a reorganization plan. These subsequent events will shape the future gas structure for PG&E. Instead of requiring PG&E to adhere to a rigid schedule at this time, the settlement agreement provides the parties with the necessary flexibility to respond to future events.

DGS also seeks to change the proposed settlement agreement by adding a requirement that the open season bidding process give priority to end use customers before capacity is made available to non-end users. To implement this priority, DGS proposes a two-phased open season. The settling parties contend that such a change is not needed because end use customers who currently hold capacity rights will be given the opportunity to extend their contracts. The settling parties also state that Section V.E.3.b. of the proposed settlement agreement protects the interests of PG&E's end use customers by reserving 100 MDth/d of firm capacity in the open season for on-system deliveries, and limiting the initial off-system offering to 340 MDth/d.

Given the right of existing capacity holders under the proposed settlement agreement to extend their contracts for the Gas Accord II period, and the short duration of the one-year extension, we will not adopt DGS' request to give priority to end users.

SoCalGas and SDG&E recommend that PG&E change its nominations protocols to make them consistent with the NAESB protocols. If such a change is adopted, interruptible shipper nominations in Cycles 2 and 3 could be bumped by firm shipper nominations during those cycles.

The settling parties contend that the change requested by SoCalGas and SDG&E would require PG&E to change its current tariff, which has been in place since the beginning of the Gas Accord in 1998. The tariff currently provides that interruptible shipper nominations in Cycles 2, 3, and 4 cannot be bumped by firm shipper nominations during those cycles. The settling parties state that this proposal is a new issue that was not previously raised in this proceeding, and was not identified in the Scoping Memo. They assert that such a change would be difficult, if not impossible, for the parties and the Commission to resolve in time for the one-year extension of the Gas Accord.

The change in the nomination protocols would affect both interruptible and firm shippers, and would require a change in PG&E's tariff. Since this issue was not raised prior to the comments on the proposed settlement agreement, the shippers who could be affected by such a change have not had a chance to voice their opinions. Also, given the need to resolve the Gas Accord extension before the start of the upcoming winter season, and the limited duration of the extension, it is unlikely that the nomination protocol change could be implemented in time. SoCalGas and SDG&E are free to raise this issue in the upcoming evidentiary hearing on the Scoping Memo issues.⁷

The other change that SoCalGas and SDG&E seek is a requirement that PG&E post on an electronic bulletin board the total amount of gas stored in its underground storage fields as of the previous day. The settling parties state that this issue was not raised prior to the comments on the proposed settlement agreement, and that this change would also be difficult for the parties and the Commission to resolve in time for the one-year extension of the Gas Accord. The settling parties contend that such a posting requirement would alter the terms of the Gas Accord and other Commission-approved settlements. In addition, the settling parties note that PG&E's existing tariff protects the gas storage information from disclosure as commercially sensitive information of PG&E's Core Procurement Department, and that the storage facilities of SoCalGas are more extensive, and include a much higher percentage of storage allocated to the non-core market.

A review of D.00-02-050 and D.00-05-049 reveal that the idea of disclosing certain PG&E storage information on an electronic bulletin board has been considered. However, in the two settlements that were adopted in those decisions, the parties agreed that PG&E did not have to make this information available. (See D.00-02-050, Att. 1, Sections C.1.e. and C.1.g.; D.00-05-049, Att. A, Section 3.5.) Given the short duration of the Gas Accord extension, and the two previous settlements which considered requiring PG&E to post certain storage information, we decline to require PG&E to post the total amount of gas stored in its underground storage fields, as of the previous day, on an electronic bulletin board.

We now turn to the conditions that various commenting parties seek to impose on approval of the proposed settlement agreement. Calpine requests that the Commission find that the settlement agreement has no precedential effect on the final resolution of the Scoping Memo issues, and that the Commission order that the Scoping Memo issues be addressed in this proceeding. In reply comments, settling parties point out that Section IV of the settlement provides that all parties have reserved all of their rights with respect to the Scoping Memo issues, and that Rule 51.8 covers Calpine's concern that the adoption of a settlement by the Commission does not set precedent.

We agree. The assurances that Calpine seeks are not needed as a condition of approving the settlement. Rule 51.8 provides that unless the Commission expressly provides otherwise, the adoption of a settlement "does not constitute approval of, or precedent regarding, any principle or issue in the proceeding or in any future proceeding." Nothing in today's decision affects how the Commission will ultimately resolve the issues identified in the Scoping Memo. The July 9, 2002 ALJ ruling established a schedule for the service of prepared testimony and reply testimony on the issues identified in the Scoping Memo, and stated that the evidentiary hearings for these issues would be set in a future ruling.

EPNG requests that PG&E make all unsubscribed capacity, including all seasonal capacity, available to shippers in the open season on an open and nondiscriminatory basis. The settling parties point out that Section V.A.3. of the proposed settlement agreement specifically provides that all existing seasonal contract holders will be given contract extension rights, and that PG&E has a tariff for anyone interested in seasonal service. They also state that anyone who wants seasonal service may seek short-term assignments of capacity from annual capacity holders in the secondary market. The settling parties also note the difficulty of setting up an open season process for seasonal capacity when the proposed settlement agreement only calls for a one-year extension of the Gas Accord.

We agree with the settling parties that we should not condition the approval of the settlement on a requirement that all unsubscribed capacity, including seasonal capacity, be made available to shippers in the open season. Under the proposed settlement agreement, holders of seasonal transmission capacity may extend their contracts for the Gas Accord II period. In addition, establishing an open season process for seasonal capacity would not be feasible given the one-year extension of the Gas Accord.

DGS recommends that the Commission impose a condition that PG&E be required to submit a cost-of-service study before the Commission approves the proposed settlement agreement. The settling parties contend that a full cost-of-service review before approving the settlement is impractical given the short duration of the Gas Accord extension and the proposed start of the open season. They also note that PG&E's current rates would be extended without change, and that PG&E would forego the 2.5% annual rate escalation provided for in the Gas Accord.

We agree with the settling parties that DGS' recommendation for PG&E to submit a cost-of-service study, and the review of such a study, is impractical given the timeframe of the one-year extension, the open season process, and the upcoming winter season. We also note that one of the issues identified in the Scoping Memo is how the existing Gas Accord structure has performed, and whether it is in the best interest of the state to continue this structure. Thus, the upcoming hearings on the Scoping Memo issues will address the viability of the Gas Accord structure.

Although the commenting parties seek to make certain changes, or condition the approval of the proposed settlement agreement, they do not contest the one-year extension of the Gas Accord, or any of the factual issues relating to the settlement. In addition, none of the commenting parties have stated that hearings are necessary. We conclude that none of the changes or conditions that the commenting parties seek to impose are material to any of the issues in the proposed settlement agreement, and in accordance with Rule 51.6, no hearings regarding the proposed settlement agreement are needed.

We note that a broad cross-section of gas industry participants and customer groups have signed the proposed settlement agreement. Even though some of the commenting parties have stated that they would like to make changes to the settlement or impose conditions, none of them have voiced any opposition to the premise of extending the terms and conditions of the Gas Accord for an additional year. By extending the Gas Accord for an additional year, participants in the gas market in PG&E's service territory will have commercial certainty over how PG&E's gas transmission and storage will work in the coming year, and what rates they can expect. This will also provide certainty as to the gas market structure for PG&E while the Bankruptcy Court decides which plan of reorganization is to be adopted. The Gas Accord II period is also limited to a duration of one year.

Although the settlement would deem the issues identified in the Scoping Memo to be resolved in the Gas Accord II period, these issues will be litigated or resolved in the upcoming months, and are to take effect after the Gas Accord II period has expired. In addition, if the proposed settlement agreement is approved, PG&E's authority to use natural gas-based financial instruments to manage the price and revenue risks associated with its natural gas transmission and storage assets, as set forth in D.98-12-082, will continue.

Based on the foregoing, and pursuant to Rule 51.1(e), we conclude that the May 17, 2002 "Gas Accord II Settlement Agreement," which the settlement parties move for us to approve, is reasonable in light of the whole record, consistent with the law, and in the public interest. Accordingly, the joint motion for approval of the Gas Accord II Settlement Agreement is granted.